Success Stories

Retail Site Selection:

Wireless Telecom – Comparing LOI’s

Abstract:

After we helped a wireless telecom retailer find two possible store locations within the same Westchester town and negotiated letters of intent for each, the retailer needed help comparing the costs of each potential lease. Admiral’s analysis showed that despite the very different lease structures, the respective costs of each space were similar, helping the client choose a location based on other factors, including adjacent retailers and build-out time.

CHALLENGES:

  • The comparison was made more complicated by the different lease structures of each space: one a typical NNN lease, the other, modified gross lease. Also, the tenant’s build-out cost and free rent period were very different for each space.

Solution:

  • Since the ultimate cost of each potential lease was similar, the analysis did not prompt a renegotiation of either LOI. However, it did give the retailer confidence that its risks related to base rent and reimbursement increases were not significantly different between the spaces, and made clear that, despite the lower rent, they would prefer to avoid the additional up-front cost of taking on the space in lesser condition.
  • The space in worse condition had a lower rent, and the landlord offered a higher free rent period. However, the tenant’s build-out cost for this space was significantly higher and their opening time would be later.
  • Analysis showed that despite the various differences between the leases, the net present cost of the spaces was similar. The main difference was how much of an investment was required by the retailer, both in terms of up-front dollars as well as missed operations and opportunities.
  • After reviewing the numbers, the tenant felt more comfortable making a decision on the qualitative differences they saw in the space, such as location on the main shopping street and the retailers immediately adjacent to them. The retailer also was willing to give up a small amount of their future profit in the form of higher rent in order to not have to make that additional up-front investment.

Client BENEFITS:

  • Since the ultimate cost of each potential lease was similar, the analysis did not prompt a renegotiation of either LOI. However, it did give the retailer confidence that its risks related to base rent and reimbursement increases were not significantly different between the spaces, and made clear that, despite the lower rent, they would prefer to avoid the additional up-front cost of taking on the space in lesser condition.
  • The space in worse condition had a lower rent, and the landlord offered a higher free rent period. However, the tenant’s build-out cost for this space was significantly higher and their opening time would be later.
  • Analysis showed that despite the various differences between the leases, the net present cost of the spaces was similar. The main difference was how much of an investment was required by the retailer, both in terms of up-front dollars as well as missed operations and opportunities.
  • After reviewing the numbers, the tenant felt more comfortable making a decision on the qualitative differences they saw in the space, such as location on the main shopping street and the retailers immediately adjacent to them. The retailer also was willing to give up a small amount of their future profit in the form of higher rent in order to not have to make that additional up-front investment.